McDonald Company
The following information relates to financial projections of McDonald Company:
Projected sales 75,000 units
Projected variable costs $ \$3.00 $ per unit
Projectedfixed costs $ \$ 60,000 $ per year
Projected unit sales price $ \$ 8.00 $

Refer to McDonald Company.If McDonald Company achieves its projections,what will be its degree of operating leverage?
A)6.25
B)1.19
C)1.68
D)3.00

Question

McDonald Company
The following information relates to financial projections of McDonald Company:
Projected sales                                                        75,000 units
Projected variable costs                                           $ \$3.00 $ per unit
Projectedfixed costs                                                $ \$ 60,000 $ per year
Projected unit sales price                                        $ \$ 8.00 $

Refer to McDonald Company.If McDonald Company achieves its projections,what will be its degree of operating leverage?
A)6.25
B)1.19
C)1.68
D)3.00

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as the percentage change in operating income divided by the percentage change in sales. It can also be calculated using the formula: DOL = [Q(P-V)] / [Q(P-V) - F], where Q = quantity sold, P = price per unit, V = variable cost per unit, and F = fixed costs. Using the given data: Q = 75,000 units, P = $8.00, V = $3.00, and F = $60,000. The operating income (OI) is calculated as: OI = (P-V)Q - F = ($8.00-$3.00)75,000 - $60,000 = $375,000 - $60,000 = $315,000. Plugging into the DOL formula gives: DOL = [75,000($8.00-$3.00)] / [75,000($8.00-$3.00) - $60,000] = $375,000 / $315,000 = 1.19.

McDonald Company the Following Information Relates to Financial Projections of McDonald

McDonald Company
the Following Information Relates to Financial Projections of McDonald